Baby Bells Benefit From FCC Speculation

JOHNATHAN BURNS

Published
7:00 pm EST, Sunday, January 5, 2003

Dow Jones Newswires

BellSouth Corp., Verizon Communications and SBC Communications Inc. made heavy gains Monday as investors anticipated a favorable move by the Federal Communications Commission that could decrease competition for local phone service.

SBC, Verizon and BellSouth each gained more than $2 a share in midday trading on the New York Stock Exchange.

Qwest Communications International Inc. was the largest percentage gainer of the Baby Bells, up 10.2 percent, or 55 cents, to close at $5.93, also on the Big Board.

The Wall Street Journal reported the FCC is preparing to stop making the Bells and other local phone companies rent their networks to competitors at cheap rates. The move, which would basically undo a seven-year-old FCC rule intended to encourage competition, could be voted on by FCC commissioners early next month, the Journal reported. It would then have to overcome likely legal challenges and would take about two years to phase in, according to the report.

BellSouth, SBC, Verizon, Qwest and Sprint Corp. would all benefit from the rule change, as they all have large local phone service territories.

Investors were betting that one of the biggest losers would likely be long-distance phone service provider AT&T Corp., sending its stock down 4 cents in midday trading Monday, to $27.62 on the NYSE.

As a prerequisite for providing long-distance service in their local territories, the Bells have been required to lease parts of their local networks to competitors at discount rates. Competition in the long-distance market has benefited consumers but destroyed shares of long-distance service providers, who have seen low prices and wireless substitution eat away at revenue.

Similarly, competition in the local phone service market, coupled with a weak economy, has begun to cause revenue to slip there.

On the NYSE, Verizon shares closed Monday up 9 percent, or $3.62, to $44.07, while SBC jumped 8 percent, or $2.31, to finish the day at $31.19 and BellSouth leapt 8 percent, or $2.13, to close at $29.25.